Retirement plans allow employers to provide tax‑favored savings for employees. Common small‑business plans include SEP IRAs, SIMPLE IRAs, SIMPLE 401(k)s, and qualified plans. Each plan has its own contribution rules, deadlines, and eligibility requirements.
Common Terms
Excludable Employees
Employers are not required to cover the following under SIMPLE or SEP plans:
- Employees covered by a union agreement with bargained retirement benefits
- Nonresident alien employees with no U.S.‑source compensation
Compensation for Plan Allocations
Compensation includes:
- Wages and salaries
- Professional service fees
- Amounts for personal services such as commissions, tips, fringe benefits, and bonuses
Loans From Plans
Loans are not allowed from IRAs. Loans are permitted only from:
- Qualified employer plans
- Certain annuity‑based plans
- Governmental plans
Key Retirement Plan Rules
Below is a simplified summary of contribution deadlines and limits.
SEP IRA
- Last date for contribution: Due date of employer’s return (extensions allowed)
- Maximum contribution: Employer contribution up to the SEP annual limit or 25% of compensation
- Maximum deduction: Same as contribution limit
SIMPLE IRA and SIMPLE 401(k)
- Employee salary reduction deadline: Must be deposited within 30 days after the end of the month withheld
- Employee contribution limit: Up to the SIMPLE annual limit (plus catch‑up if age 50+)
- Employer contribution:
- Matching contribution up to 3% of compensation, or
- 2% nonelective contribution for all eligible employees
- Employer contribution deadline: Due date of employer’s return (extensions allowed)
Qualified Plans (Defined Contribution Plans)
Includes profit‑sharing, money purchase, and 401(k) plans.
- Elective deferral deadline: Due date of employer’s return
- Employee elective deferral limit: Up to the annual deferral limit (plus catch‑up if age 50+)
- Employer contribution deadline: Due date of employer’s return
- Total contribution limit: Lesser of the annual defined‑contribution limit or 100% of compensation
Qualified Plans (Defined Benefit Plans)
- Contributions follow actuarial funding rules
- Quarterly installments may be required
- Maximum annual benefit is limited to the defined‑benefit annual limit or 100% of the participant’s highest three‑year average compensation